With the unemployment rate on the verge of escalating beyond 10% and the number of unemployment claims surpassing analysts expectations, there remains much uncertainty in the markets for businesses dependent on consumer spending. Essentially, either directly or indirectly, corporations depend on a strong economy and consumers buying their products and services. However, companies that provide unemployment services to individuals have a positive correlation with unemployment figures. The more people looking for work, the more people there are using these services. (Find out how to get more money from your employer. Read Negotiating For Employment Perks.)
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Monster Worldwide (NYSE:MWW), for example, has a business model which is dependent on a certain level of unemployment in the economy. Of course, their services are not limited to the unemployed, but span those seeking to change careers as well. For fiscal 2009, they reported earnings of $905 million, down 29% from the previous years after factoring in exchange rate effects. Monster recently announced the $225 million acquisition of HotJobs, an online recruitment website, indicating their expansion into other segments of the job market. Monster attempts to create a symbiotic relationship between potential employers and hopeful employees. So, although the company requires there to be some unemployment, they also depend on available job openings.
Manpower (NYSE:MAN) and its subsidiaries provides ranging employment services, such as employee selection, recruitment and training. Compared to three months ago when most analysts placed these shares in hold categories, the current consensus is that this Wall Street is recommending that investors purchase this stock - giving it a target price of 20% above its current value. Institutional investors currently hold 95% of Manpower's outstanding shares.
Compared to 2003 and 2004, when China had an unemployment rate of over 10%, the current percentage of active job seekers unable to find work stands below 5%. 51job (Nasdaq:JOBS) is a provider of employment services in China, obtaining most of their revenue from recruitment advertisements and from resume database subscription fees. Compared to Monster, Manpower and Kelly Services (Nasdaq:KELYA) which have respective betas of 2.1, 1.58 and 1.35, 51Jobs shareholders are exposed to significantly less market risk; the company carries a beta of 0.8. These shares are sensitive to overall market conditions because these corporations are also dependent on employers trying to find employees.
The Bottom Line
Investing into these types of companies is somewhat tricky. On one hand, their businesses are set up in such a manner that, if everyone was happily employed, they would be out of business. On the other, despite the partial dependence on unemployment, these service providers can only help clients when employers are actively seeking workers. Following March, 2009, unemployment continues to remain an ongoing problem despite increases in GDP and the overall stock market. This type of environment provides ideal conditions to invest in companies that help people find work. (Learn how to answer some of the hardest interviewer questions and scenarios. Check out Tips To Beat Tough Interviews.)
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